Raising Money for a Food Business
Biggest Food Business Challenges?
“Cash flow! Not enough capital!”
In the past two weeks, I’ve been working with three different clients in this situation, who hadn’t worked with me in the past couple of years.
- Each has been bootstrapping.
- Each told me they’re bursting at the seams – that sales are great.
- Two wanted to invest in a new production facility.
- All three wanted to hire employees
- All three wanted an investor pitch written, NOW.
“Wait,” I cried! Three different times. “I understand you need to raise capital. But before we race after an investor – which can be like getting married to someone you don’t know, and may not be the best option for you, especially as an early-stage company – let’s first look at your business and see what’s really happening!”
Guess what? In all three situations, my new clients weren’t even sure they were making money.
- They didn’t know their Cost of Goods Sold.
- They didn’t know their Gross Profit Margins.
- They didn’t have a customer history properly recorded, so they didn’t know:
- # Customers
- Average Sale
- Frequency of Purchase
- Customer Acquisition Cost
- Customer Lifetime Value.
“But we’re too busy,” they all said.
You know that expression: Even though you’re losing money on every sale, you’ll make it up on volume? It’s not true! Not if you don’t have a solid foundation and fix the problems, so you can better manage your business, rather than let it manage you.
Remember the two ways to make money in a business? Margin & Volume. Understand what drives your business and focus on that.
Production doesn’t always drive the business, and sometimes it’s better to delegate it. In the two cases where my clients wanted capital for equipment and a facility rental – they’re now excited about a different option.
- I am going to put them in touch with a CIA chef / quality caterer / copacker with 40 employees, who wants to grow his copack business in a new 25,000 sf production facility he’s about to close on.
- He understands it’s mutually beneficial to deliver consistent quality food while transparently minimizing costs. And he can help to make that happen.
Before running to bring in an investor – figure out what’s happening, what you really want, and what you really need. Then it can be best positioned in the most competent and confident light.
Need capital NOW? Consider other short term options for a quick fix that might tide you over, while you make sure your roof and cellar are in order. Besides family and friends, you might try: